UK interest rates could stay at 0.5pc for the rest of the year, economists
said, as the fragile recovery was underlined by a manufacturing slowdown and
tough conditions on the high street.

British manufacturing expanded at its slowest pace for seven months in April, according to the Markit/CIPS purchasing managers' index, which fell from 56.7 in March to 54.6. Any reading above 50 indicates growth.

David Noble, chief executive at the Chartered Institute of Purchasing & Supply, said: "The marked slowdown in new orders in April will definitely send a shiver down the spine of many.

"Export orders continue to grow at a very healthy rate but domestic demand is suffering as a result of falling consumer confidence and spending."

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said the odds on a Thursday rate rise – when the Bank of England's Monetary Policy Committee makes its next interest rate decision – were "very long".

"It is difficult to see the MPC moving any time soon unless they see either a decisive pick-up in activity or some clear evidence that their greatest fear – a pick-up in wage settlements – is coming to pass. We think it unlikely that the MPC will move before November and it could quite easily be 2012 before we see the first increase in Bank Rate."

The pound fell 1.57 cents against the dollar to $1.6491, while the euro rose by almost a penny to just shy of 90p.

Further evidence of Britain's feeble recovery came from the high-street, with the CBI Distributive Trades Survey for the two weeks from March 30.

While 45pc of the 130 firms surveyed saw sales volumes rise in the year to April, they "were considered poor for the time of year", while the three-month average "worsened for the third month running". A positive balance of +14 – of firms reporting sales increases rather than decreases – is the worst since the +3 of July last year. A further decline is expected next month.

Supporters of a rates rise pointed to figures from BRC-Nielsen showing annual shop price inflation up to 2.5pc last month from 2.4pc in March, thanks to a 4.7pc rise in food prices, up from 4pc.

But Darren Winder at Oriel Securities said: "There isn't enough forward momentum in the economy to absorb an increase in borrowing costs. The economy is not growing too quickly, credit is not growing too quickly and the labour market is not overheating."